BB&T, Ally fail Fed stress tests

RonaldD. Orol

WASHINGTON (MarketWatch) - BB&T Corp.
BBT, -1.41%
and government-owned Ally Financial failed final Federal Reserve stress test results released Thursday, while J.P. Morgan Chase & Co.
JPM, -1.56%
and Goldman Sachs & Co.
GS, -1.86%
were approved but required to resubmit share distribution plans to the central bank by the end of the third quarter because they have "weaknesses" in their capital plans. The stress tests were set up by the Fed to find out if 18 of the largest financial institutions can withstand a deep recession. Specifically, the test, designed to assess whether reserves were necessary to withstand another crisis like the credit crunch of 2008, showed that Ally, the former GMAC, held 1.52% in capital set aside under a measure called Tier 1 common capital ratio, below a 5% regulatory minimum threshold. BB&T's capital was above regulatory minimum thresholds but its dividend and stock buyback plan was objected to based on a qualitative assessment of its capital planning process. The Fed said J.P. Morgan and Goldman can provide the payouts they sought, but they must resubmit capital plans in six months. The 14 other financial institutions passed the test and are permitted to distribute their capital throughout the next 12 months. The results differ from initial stress test results released last week because they are forward looking, taking into account each institution's dividend and stock buyback plans for upcoming 12 months. As a result they are more important than last week's results, which focused on an average of each bank's last four quarters of dividends.

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